Sensible Policies to Address Global Warming

Written by: Peter Morici01/22/13 - 10:34 AM EST

NEW YORK ( TheStreet) -- Once again, President Obama has declared the U.S. must respond to the threat of climate change; however, putting the U.S. economy in a straightjacket -- as many of his supporters in the environmental community advocate -- would likely hasten the pace of global warming.

Instead, the U.S. should accentuate several environmental policies President Obama already put in place and exploit its new bounty of natural gas to strengthen the U.S. economy and global environment.

Many Americans are persuaded that the buildup of greenhouse gases (GHG) in the atmosphere is responsible for shrinking mountain ice caps, rising sea levels and the ferocious destruction of Hurricane Sandy and similar storms, CO2 emissions account for more than 80% of GHG and a larger share of what government policies may curtail. During President Bush's second term, Congress considered several bills that would cap U.S. CO2 emissions -- those failed to become law, as did a similar proposal offered by President Obama in his 2010 Budget.

Such regimes would allocate emission permits among businesses that process fossil fuels, like petroleum refineries, and use fuels intensely, like electric utilities and aluminum. Businesses may meet their goals by directly cutting emissions or purchasing permits from other firms that exceed their goals or shut down. Dubbed cap-and-trade, this approach is used in Europe, where a private market in trading permits has emerged.

Such an approach would bring the U.S., de facto, into the Kyoto Protocol. Implemented without U.S. ratification, this agreement commits most industrialized countries to reducing GHG emissions to 6% to 8% below 1990 levels. Importantly, developing countries are absolved, though industrialized countries may meet part of their abatement goals by financing cleanup projects in them.

Unfortunately, this regime encourages carbon-intensive manufacturing, like steel and aluminum, and consuming industries, like automobiles and appliances, to leave industrialized countries for places like China and India where fossil fuel use is unregulated and often subsidized. This increases global emissions and reduces global GDP, because developing countries often use fossil fuels, capital and labor less efficiently to make the same goods.

This madness is illustrated by the fact that China, with a GDP less than a half that of either the European Union or U.S., emits more CO2 than either economy.

Every year, Chinese emissions growth adds another country the size of Japan. It is hard to imagine that one year of China's growth, which comes to about $600 billion, could replace the emissions of Japan's $5 trillion economy. Yet, that is the kind of economic accounting cap-and-trade requires.

Moreover, government allocations of limited carbon use permits among businesses would create a new sandbox for Washington dealmakers, exacerbating the economic damage, and the opportunity for New York to establish a national trading platform -- yet another occasion for Wall Street to create synthetic securities and expand gambling that distorts economic decision making and hampers growth.